Effective tax rates (ETRs) are useful tools to make comparisons between different tax systems. However, the existing ETR measures are based on rather simplifying assumptions. In particular, they disregard the existence of different kinds of debt and hybrid securities. In this paper, we use contingent-claim analysis to calculate the ETR. We will therefore deal with both pure debt and two of the most well-known hybrid securities, that is, convertible and reverse convertible bonds. We will show that effective taxation crucially depends on the characteristics of debt and that the existing measures of ETR can be dramatically biased, since they account neither for default risk nor for the ability to convert debt into equity.
Corporate Debt, Hybrid Securities, and the Effective Tax Rate
PANTEGHINI, Paolo
2012-01-01
Abstract
Effective tax rates (ETRs) are useful tools to make comparisons between different tax systems. However, the existing ETR measures are based on rather simplifying assumptions. In particular, they disregard the existence of different kinds of debt and hybrid securities. In this paper, we use contingent-claim analysis to calculate the ETR. We will therefore deal with both pure debt and two of the most well-known hybrid securities, that is, convertible and reverse convertible bonds. We will show that effective taxation crucially depends on the characteristics of debt and that the existing measures of ETR can be dramatically biased, since they account neither for default risk nor for the ability to convert debt into equity.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
